The Consumer Price Index (CPI) is a statistical concept and a key macroeconomic indicator that measures the average change over time in the prices paid by urban and rural consumers for a fixed basket of goods and services used for daily consumption. It is essentially a measure of retail inflation and the cost of living, reflecting the purchasing power of the Indian Rupee.
The CPI we use today, the CPI (Combined), was introduced by the Ministry of Statistics and Programme Implementation (MOSPI) in 2011-12 to unify separate indices for different population groups, such as the CPI for Urban Non-Manual Employees (CPI-UNME). This unified index was created to provide a single, comprehensive measure of inflation for the entire economy, which the earlier, fragmented indices did not reflect. The CPI is calculated by comparing the current price of a basket of roughly 300–450 goods and services to their price in a base year, which is currently 2012. The prices are collected monthly by field officers from the National Statistical Office (NSO) across over 1,100 villages and 1,100 towns.
The CPI is central to India's monetary policy, connecting directly to the Reserve Bank of India (RBI). The RBI officially adopted the CPI (Combined) as the key measure of inflation for all policy purposes in April 2014, replacing the earlier focus on the Wholesale Price Index (WPI). This adoption was based on the recommendations of the Urjit R. Patel Committee Report (2014). The CPI is the anchor for the Flexible Inflation Targeting (FIT) framework, which was formally adopted in May 2016 through an amendment to Section 45ZA of the RBI Act, 1934. Under this framework, the RBI's Monetary Policy Committee (MPC) is mandated to keep CPI inflation at 4% with a tolerance band of ±2% (i.e., 2%–6%).
While the CPI (Combined) is the headline measure, the separate indices like CPI for Industrial Workers (CPI-IW) and CPI for Agricultural Labourers (CPI-AL) are still compiled and published by the Labour Bureau for purposes like Dearness Allowance (DA) revision and wage fixation. A recent change is the ongoing revision of the CPI series, with the base year being shifted from 2012 to 2024, based on the Household Consumption Expenditure Survey 2023-24, to enhance coverage and representativeness.